General Equilibrium with Endogenous Uncertainty and Default

General Equilibrium with Endogenous Uncertainty and Default

In this paper we study the introduction of new assets which are oftenly observed to be de…ned in expected values rather than state by state, called the Arrow-Lind-Malinvaud (ALM) assets. We demonstrate that individual default emerges naturally in an economy where such ALM assets are introduced without completing all contingency markets. We further provide conditions under which individual defau...

LIQUIDITY, DEFAULT AND CRASHES: ENDOGENOUS CONTRACTS IN GENERAL EQUILIBRIUM By

Default and Punishment in General Equilibrium

We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of adverse selection and signalling phenomena (including the Akerlof lemons model and the Rothschil...

DEFAULT AND PUNISHMENT IN GENERAL EQUILIBRIUM By

We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of adverse selection, and signalling phenomena (including the Akerlof lemons model and Rothschild—S...

Default and Credit Constraints in General Equilibrium

A recent strand of the literature convincingly demonstrates that both the sovereign default and the household default are properly explained by models in which agents face uninsurable income shocks, while being allowed to strategically default on their debt. We develop a similar model in a general equilibrium setting, and we prove that the market equilibrium features overborrowing as well as to...